Analysis on the M&A Model and Risk Control of Security Enterprises in China

Since 2006, the hot wave of security capital mergers and acquisitions in the Chinese market has swept through waves. Some international giants have formed a series of security product lines in the shortest time through a series of global mergers and acquisitions, and have gained advantages in security competition. In recent years, especially after the financial crisis, the Chinese market has been increasingly valued by foreign-invested companies and they have set up camps in China. According to investigations, there are currently more than 100 foreign security companies in the Chinese market. These companies have adopted localization strategies almost without exception. One of them is the acquisition of Chinese companies. Under such circumstances, how companies in China respond to the risks faced by foreign capital mergers and acquisitions and how to develop healthily has become a common concern of enterprises and government departments.

First, after the model of foreign mergers and acquisitions entered the new millennium, China's use of foreign capital has shown a diversified trend. Foreign mergers and acquisitions of domestic enterprises have gradually become an emerging form of foreign investment in China. In 2003, in order to better regulate and manage such commercial activities, the Ministry of Foreign Trade and Economic Cooperation was used as the head office, joint taxation, industry and commerce and other related departments to formulate the “Provisional Regulations on Acquisition of Domestic Enterprises by Foreign Investors”. With the changes in China's business environment, the relevant departments have continuously revised and improved this provision, making it the most important department regulation in this field in China. In June 2009, in order to ensure that the regulations were consistent with the newly enacted "Anti-Monopoly Law" and other related laws and regulations, the Ministry of Commerce issued the most recent revision of the "Regulations on the Acquisition of Domestic Enterprises by Foreign Investors", again clarifying related to foreign capital M&A. Management principles and management methods for matters.

For the concepts and models of foreign capital mergers and acquisitions, there are clear definitions and explanations in the regulations. The so-called foreign capital mergers and acquisitions are foreign investors and domestic non-foreign-invested enterprises, through the business activities of equity mergers and acquisitions and asset mergers and acquisitions. It can be seen that the main modes of foreign capital M&A are equity mergers and acquisitions and asset mergers and acquisitions. Among them, equity mergers and acquisitions means that foreign investors purchase shares of domestic non-foreign-invested enterprise shareholders or subscribe for domestic companies to increase capital, so that the domestic companies are changed and established as foreign-invested enterprises; asset mergers and acquisitions refer to the establishment of foreign-invested enterprises by foreign investors and pass The enterprise agreement purchases the assets of domestic enterprises for the purpose of operating the assets, or the foreign investor purchases the assets of the domestic enterprise, and invests in the establishment of a foreign-invested enterprise to operate the assets.

Second, the purpose of foreign mergers and acquisitions In analyzing the risk of foreign capital mergers and acquisitions of Chinese companies, the author believes that it is necessary to first understand the original intention and purpose of foreign-funded enterprises in China's mergers and acquisitions. Only under the premise of clarifying the purpose and direction of its mergers and acquisitions, can we reasonably analyze and judge risks in a more targeted way.

In recent years, especially in the construction of safe cities, the Beijing Olympics, and the pressure of "maintaining stability" and other large market demands, China's security industry has achieved rapid development. The rapid increase in demand in the domestic market has attracted a large number of overseas companies into China to seek new development. The continuous spread of the financial crisis is a strategy that allows many overseas companies to continuously adjust their businesses in China; it also strengthens resources input in the region. Looking at the development of the global security industry, we can find that today's suppliers in the security industry are gradually shifting from a product manufacturer to a system integration service provider. The key to market competition also gradually reflects the overall implementation capabilities of the security system. Therefore, in order to continuously enrich its own product lines, major global security production companies, through the power of capital, through mergers, quickly realize the enrichment of product sequences; in order to achieve its own overall service capabilities.

It is precisely for this reason that we must realize that the acquisition of foreign investment in local security companies is primarily due to the comprehensive consideration of improving its own industrial chain in the global field. Secondly, it is the result of the localization strategy that a large number of foreign-funded enterprises have implemented to open up the Chinese market. It hopes to rapidly realize the leading position in the Chinese industrial market by acquiring local production capacity, talents, channels and other resources.

Third, as the merger and acquisition of mergers and acquisitions in the various stages of possible risks In the merger and acquisition process, although the actual situation of different mergers and acquisitions are different, but foreign mergers and acquisitions are nothing more than include the following stages: 1, issue M & A letter of intent; 2 , verification of information, implementation of due diligence; 3, business negotiations; 4, confirmation of mergers and acquisitions, clear methods, details, etc.; 5, signing of mergers and acquisitions contracts; 6, regulatory approvals; 7, mergers and acquisitions and other several core links. In the process of mergers and acquisitions, it is necessary to pay attention to the control of each stage, control the details in a full range, and avoid corresponding risks so as to ensure the smooth and effective implementation of mergers and acquisitions.

Mergers and acquisitions of the risk 1, the issue of M & A letter of intent: M & A direction was issued by the merger and acquisition of M & A letter of intent. In the letter of intent, specify the basic conditions relating to mergers and acquisitions, transaction prices, transaction methods, transaction schedules and other mergers and acquisitions. Formally initiate mergers and acquisitions procedures through textual materials that have certain legal effects. In the actual operation, there are also some mergers and acquisitions cases, and no M&A letter of intent was issued. Instead, M&A procedures were initiated through direct personnel contact and verbal negotiations. At this stage, the main risk is the legal risk of both parties in the process of handling the previous period.

2. Verification of information and implementation of due diligence: Generally, it refers to mergers and acquisitions companies that conduct comprehensive surveys and investigations of acquired companies. Overseas mergers and acquisitions companies to implement mergers and acquisitions of Chinese companies, most of them are considered from the overall development strategy. However, in this process, in order to ensure the smooth progress of cooperation, Chinese enterprises must also conduct a comprehensive understanding of overseas M&A companies, conduct value considerations in various aspects, and select them as suitable partners. At this stage, the main risk is the risk of knowing the other party's qualifications and intentions, and the risk of concealment or even fraud of overseas mergers and acquisitions on relevant information.

3. Business negotiation: The core link of M&A, the main negotiation content involves the responsibilities and obligations of the M&A parties, the M&A method, the transaction price, the M&A transaction method, the processing of related personnel assets, the overall timetable for M&A, etc. This link is The detailed refinement of all issues involved in M&A. In accordance with the results of the negotiations, a specific contractual clause was formed, and the contractually finalized contractual text that was jointly confirmed by both parties and was to be approved was signed and written in the language specified by both parties according to the circumstances. The risks in this stage are mainly business risks, legal risks, etc. in the negotiation process, involving all aspects of mergers and acquisitions.

4, confirm the merger and acquisition, clear mergers and acquisitions and details: the choice of mergers and acquisitions and the corresponding details of the confirmation, the impact on the cost of mergers and acquisitions is also great. With the continuous enhancement of the ability of our country's enterprises, even though they are regarded as mergers and acquisitions, there will be more initiative and right to speak in mergers and acquisitions. Therefore, Chinese enterprises must make full use of such advantages, occupy a more favorable position, and reduce the cost of mergers and acquisitions. At this stage, the main risks are the cost risks faced during the merger and acquisition process, the operational risks during the implementation process, and so on.

5. Signing the M&A contract: After the M & A parties have passed the M & A resolution within the company, they authorized the relevant personnel to formally sign the M&A contract. After the signing of the contract, the relevant provisions formally came into effect, the business transaction of the merger and acquisition was completed, and the transaction was protected by relevant laws and entered the implementation stage. At this stage, the main risk is the internal approval risk of M&A parties. The successful completion of this phase requires M&A plans to receive support and recognition from each of the internal groups.

6. Approval by the regulatory authorities: Although the security industry is not an industry with strict restrictions on foreign mergers and acquisitions by the state, it still needs to be implemented in accordance with the relevant provisions of the "Regulations on Acquisition of Domestic Enterprises by Foreign Investors". In the process of changing an enterprise into a foreign-invested enterprise, it is subject to the approval of the relevant department. At this stage, the main risks are related policy risks and approval risks.

7. Follow-up mergers and acquisitions integration: Low prices are not just low prices for mergers and acquisitions, but also mean that the subsequent integration costs are low. If there is a lack of complementarity and there are conflicts in which certain aspects are difficult to integrate, the subsequent costs will greatly increase the actual costs of mergers and acquisitions. Perhaps when we go dozens of rounds at the negotiating table, the meticulous care brought about by mergers and acquisitions may only be eroded by the chaos in the integration process within a few days. In this process, the main risks are the risk of cultural integration in the integration process, the risk of the entire staff, the risk of management conflicts and so on.

Fourth, the mergers and acquisitions need to pay attention to each link in the merger and acquisition process need to carefully grasp, carefully face, every small part will affect the success of the final merger or not. Based on the long-term concern and research on mergers and acquisitions, the author thinks that the analysis of mergers and acquisitions plans, the investigation of the qualifications of mergers and acquisitions, the details of the actual operations of mergers and acquisitions, and the integration after mergers and acquisitions should be focused on:

Links to be Acquired by the Purchaser 1. Analysis and design of M&A plans: In-depth research and analysis are conducted in accordance with the M&A plans and other related documents provided by the other party. Without prejudice to the negotiation of mergers and acquisitions, the largest and most probable party will listen to the opinions of all parties, especially the opinions and suggestions of professional organizations, and then choose the M&A plan that is most suitable for Chinese enterprises.

2. Investigation of Qualifications of Mergers and Acquisitions: Prior to entering formal business negotiations, the investigation of the qualifications of mergers and acquisitions should be highly valued. External professional organizations can be selected to fully understand the background, size, development status, and development plans of the M&A parties, so as to ensure that our enterprises can choose the most suitable overseas companies for cooperation.

3. Practical details of the M&A plan: The design of the M&A plan is the core of the M&A operation. However, in this aspect, not only must the final optimal M&A plan be confirmed, but also it should be focused on the future in the actual operation process. There are detailed issues, such as time constraints, changes in the market environment, changes in the legal environment, changes in the internal environment, and so on. Full details of the details that may affect the smooth implementation of mergers and acquisitions should be clarified, and multiple responses should be designed to prevent mergers and acquisitions programs from being implemented due to certain details.

4. Integration after M&A: In the process of integration after M&A, it involves the integration of two corporate cultures and two management methods, and even involves the communication and communication between employees of two different cultural backgrounds. The success of the integration determines the success of the final merger. Therefore, this final step is to ensure that companies can achieve long-term and stable operations after mergers and acquisitions and ensure the key to achieving the value of mergers and acquisitions.

V. Concerns for Avoiding Unfavorable Risks For the avoidance of risk, the author believes that the above-mentioned key focus can be taken into consideration from the three aspects of the early, middle and late stages of the M&A process:

First of all, in the early stages of mergers and acquisitions, China's mergers and acquisitions company, it is necessary to have an in-depth understanding and judgment of overseas mergers and acquisitions company size, industry background, development strategy, etc., in order to choose the right merger and acquisition parties to cooperate.

Foreign-funded enterprises' M&A for Chinese companies is more guided by their strategic development. The purpose of mergers and acquisitions is to help themselves gain more competitive advantages in the industry competition. Subjected to the limitations of the security industry, its purpose should not be simply to circulate money and speculation, but to have a clear purpose and pertinence. By analyzing the issues related to overseas mergers and acquisitions, we can help Chinese companies find common ground in their interests and reduce the risk of merger failure. Moreover, Chinese enterprises should also analyze and judge mergers and acquisitions from the perspective of the state and from the perspective of the entire industry, and must not be at the expense of national interests or the loss of the overall interests of the industry. In the early stages of mergers and acquisitions, China’s enterprises also need to further clarify their own advantages in the industry, and then can be a good judgment of the other side of the merger and acquisition demand. This will not only better select foreign-funded merger and acquisition companies that are most conducive to their own development, but will also take the initiative in the process of mergers and acquisitions. It will also help Chinese enterprises to gain more discourse rights and practical interests in the course of implementing M&A negotiations in the future. .

Second, in the process of mergers and acquisitions, we must consider the interests of all parties in a comprehensive manner, choose the most appropriate merger and acquisition method, and ensure the interests of existing shareholders, business operators, and employees.

Whether it is equity mergers and acquisitions or asset mergers and acquisitions, it will inevitably involve the interests of existing shareholders, business operators, and employees. The choice of mergers and acquisitions plans should not be based solely on the interests of a certain group, but should be based on the common interests of all groups. Design and selection of M&A plans. In the equity structure of new enterprises, in the aspects of stocks, asset transfer methods, and the calculation of related asset prices and equity prices, opinions from all parties should be fully heard to achieve consensus among the parties. In addition, China’s “Regulations on the Acquisition of Domestic Enterprises by Foreign Investors” particularly emphasizes that for foreign capital mergers and acquisitions, it is necessary to formulate a detailed “employment plan for the employees of merged and acquired domestic enterprises”. For this task, it should not be mere formality, but should be highly valued. Strict development of a stipulation plan that meets the actual situation and takes care of employees' interests will help the smooth development of the post-merger work.

Finally, in the final stage of mergers and acquisitions, it is necessary to ensure the smooth implementation of the integration of the two parties and the implementation of the corresponding staff arrangements.

The key to achieving the ultimate goal of M&A is the ultimate integrated operation, which is precisely the biggest risk in the M&A process. The ultimate goal of mergers and acquisitions is to realize the effect of "1+1>2" and realize the strategic goals set out earlier. Once the integration fails, not only will all the efforts in the past be turned into catastrophes, but it will even have catastrophic consequences for the original normal operations of the M&A parties. Therefore, it is necessary for the M&A parties to fully consider possible problems at the institutional level, resource level and operation level, build a corresponding integrated management system earlier, integrate the leadership components with the components, minimize the risk in the integration process, and achieve the ultimate success of M&A.

To sum up, we have reason to believe that under the leadership of capital power, the overseas companies’ mergers and acquisitions with China’s security companies will continue, and the impact of these mergers and acquisitions on China’s security industry will also be further deepened. China's security companies, whether they are walking hand in hand with multinational giants, or still sticking to their own deeds, will contribute to the development of China's security industry, and will certainly gain a proper historical position in the development of China's security industry. Driven by a large number of foreign mergers and acquisitions, China's security industry will also usher in a new round of growth and change, showing a new economic model under the competition between China and the West. ”